Councils have taken heavy losses in the international credit crisis and are now looking at ratepayers to pick up the tab.
The losses mean councils may have to "raise rates", "constrain their spending" and "reconsider their plans", according to official advice given to new Local Government Minister RodneyHide.
But the briefing shows rates rose by 41.6 per cent over and above inflation from 1998-2007 and Mr Hide said he still wanted councils to keep them down whatever financial trouble they might think they were in.
"I certainly don't accept that because councils are having a tough time they just sock the ratepayer. It is tougher out there for everyone. But no one else has got someone else to pass it on to." Mr Hide said it simply reinforced his view that the 85 councils needed to justify every dollar they spent.
The Department of Internal Affairs briefing does not say which councils are in trouble but says some may be unable to finish big projects or even pay off their loans. Mr Hide did not name the councils either.
The briefing says councils relying on investment returns as a funding source "may be exposed to a substantial loss in income because of the decline in world sharemarkets".
It says some councils are reporting difficulty in raising debt funding, which is used to cover costs of big projects.
The briefing says councils providing new debt-funded projects may be "severely constrained" in servicing the loans or continuing with the projects. It says the 10-year plans councils are due to release early next year will provide firmer evidence of the problems.
Mr Hide said he did not believe there was "unavoidable pain" for ratepayers, as the councils' representative body Local Government New Zealand had identified "$300 million to $400 million in extra expense put on them" in compliance costs from central government legislation such as the Building Act.
"My big drive has been looking at ways of reducing the impost of local government on ratepayers, and that is coming down to central government reducing its impost on local government," Mr Hide said.
The briefing also says the Government will have "one month" to respond to the findings of the Royal Commission on Auckland Governance, as any delays mean the changes could not be in place for the 2010 elections. The commission report is due on March 31.
